NEW PROJECTIONS SHOW NATIONAL HEALTH SPENDING TO GROW MORE SLOWLY THAN PROJECTED LAST YEAR

National Health Spending Will Still Double by 2008

Projected growth of national health spending over the next decade has been revised downward since last year's projections, according to a new study by the Health Care Financing Administration. The new projections show the rate of growth slows to an average of 6.5 percent for 1997-2007 compared to last year's projection of 7.0 percent. National health spending is still projected to double in level by 2008.

This downward revision reflects slower than expected growth in Medicare spending in 1998, and slower projected growth for both private and Medicare spending in the latter half of the projection period.

The study projects the nation's total health spending will reach $2.2 trillion in 2008 and 16.2 percent of Gross Domestic Product (GDP), up from $1.1 trillion and 13.5 percent in 1997. In last year's projection health spending was projected to reach 16.6 percent of GDP in 2007.

"These figures show that our efforts, such as our waste, fraud and abuse initiatives, have helped control health care costs in the United States," HHS Secretary Donna E. Shalala said. AAnd President Clinton's plan to strengthen Medicare will continue to control health care spending while making sure that Americans maintain their access to high-quality, affordable health care into the 21st century."

The annual study by HCFA's Office of the Actuary, "The Next Decade of Health Spending: A New Outlook," is being published in the July/August 1999 issue of Health Affairs. Last year's projections were published in the September/October 1998 issue of the national health journal.

The report indicates that national health spending growth will accelerate from 1998 through 2000, due mostly to an acceleration in private sector health spending growth. During this period, private sector health spending growth will outpace public sector health spending growth, reversing the current trend. This reversal is expected to be more significant than anticipated last year.

HCFA actuaries project Medicare spending will grow just 4.5 percent on average over the 1997-2000 period compared to 5.1 percent over the same period in last year=s projection. This slower growth is the result of the Balanced Budget Act (BBA) of 1997 and fraud, waste and abuse initiatives.

"While it's encouraging to see that we are protecting the Medicare Trust Funds, we must be vigilant to protect beneficiaries at the same time," HCFA Administrator Nancy-Ann DeParle said. "The provisions of the BBA expire in 2003 and we must be certain that any new actions we take will protect Medicare from a return to unsustainable growth rates."

Private sector growth is projected to average 7.3 percent annually over the 1997-2000 period, compared to 6.7 percent for the same period in last year's projection. Thus the private sector growth is projected to be 2.8 percentage points higher than Medicare growth between 1997 and 2000. The main reasons for the faster anticipated growth in the private sector is a sharper projected acceleration in private health insurance premiums for 1999-2000 and faster projected growth of drug spending.

For the years 2001 through 2008, both public and private sector spending growth is projected to be slower than was expected last year. Public sector spending growth, particularly Medicare, is affected by slower expected input price increases for hospitals, physicians, home health, and skilled nursing services and reduced hospital case-mix updates. Slower private sector spending results from a faster than expected rise in the uninsured population, slower than expected input price increases, and a general shift in managed care toward arrangements that more effectively control costs.

The HCFA economists and actuaries project revised patterns of growth across types of services. Drug spending is projected to grow faster than projected last year in part due to upward revisions to historical drug spending, new drug introductions, and recent evidence of increasing drug prices. Hospital spending growth is also expected to accelerate faster as the recent trend towards rising occupancy rates continues. And spending on nursing home and home health care will grow more slowly than projected last year.

Detailed information on the forecasts, both by type of service and source of funds, is available on the HCFA home page at: http://hcfa.hhs.gov/stats/NHE-Proj/.

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Note: HHS press releases are available on the World Wide Web at: http://www.dhhs.gov.